Does workers' compensation adequately cover workers with relatively high earnings?

A reader of this blog recently pointed out that workers with relatively high earnings may not be adequately covered by workers’ compensation. One’s expenses tend to parallel one’s net earnings; a temporary loss of earnings because of an occupational injury or disease puts all earners at risk of having insufficient income to meet their expenses. While one might expect all workers to have less income on workers’ compensation, high wage earners lose disproportionally more than lower wage earners.

I had to agree with the logic of this observation, however, the truth of the statement depends greatly on how you define “workers with relatively high earnings” and on the jurisdiction you are considering.

The compensation a worker receives under most workers’ compensation programs is the product of some measure of insurable earnings and a compensable percentage rate. Neither the rate of compensation nor the level of insurable earnings is standard; both the rate of compensation and the maximum insurable earnings are matters of workers’ compensation policy. How much compensation a worker with relatively high earnings will receive depends on these two policy factors and whether or not the benefits are taxable.

Virtually all workers’ compensation systems in Canada, the US and Australia impose a maximum insurable or compensable earnings limit; income above that level is not compensated. Manitoba is an exception to the rule with no maximum on insurable earnings and a $111,000 per worker limit on assessable earnings. BC has a maximum of $75,500 while Alberta’s max for 2013 is $92,600 (the highest in Canada). Ontario’s maximum is $83,200. Saskatchewan’s current maximum is the lowest in western Canada at $55,000. The Maritime Provinces are in the same range as Saskatchewan while Quebec has a $67,500 maximum. WorkSafeBC uses 90% of net while WSIB in Ontario has an 85% of net rate. Nova Scotia has a 75% of net rate with a step up at 26 weeks to 85% (presumably to compensate more adequately for injuries of greater severity). Prince Edward Island provides 80% of net with a step up to 85% of net at 38 weeks. The Yukon retains a 75% of gross calculation.

In the United States, most states have a 66.67% compensation rate for individual time-loss claims as opposed to predominant model in Canada of compensating some percentage of net earnings. I could not find a concise listing of maximum workers’ compensation insurable earnings but in 2012, the National Academy of Social Insurance noted that the maximum weekly temporary total disability (TTD) benefit ranged from $437 in Mississippi to $1,457 in Iowa. Both of these states provide a two-thirds of gross average earnings benefit level so the maximum earnings covered would range from a low of about $34k to $113k annual gross income. Connecticut pays disability benefits at a rate of 75% of the spendable average weekly earnings to a 2010 maximum of $1168 per week or about $90K gross per year. If we define workers with high earnings as those earning at or above the maximum insurable, these workers will generally do better in Alaska, California, Connecticut, District of Columbia, Illinois, Iowa, Massachusetts, New Hampshire, Oregon, Vermont, and Washington where the maximum weekly benefit is greater than $1000 as opposed to Arkansas, Georgia, Idaho, Kansas, Louisiana and Mississippi where the weekly maximum temporary disability rate is $600.

Australian WorkCover schemes also vary in terms of the maximum earnings covered. A worker with relatively high earnings needs to check with the jurisdiction in question to be certain if a maximum earnings level will limit their coverage. ComCare has no explicit maximum. Western Australia and the Northern Territories have maximum weekly earning restrictions that equate to well over $100k per year. In New South Wales, weekly compensation is based on the “current weekly wage”, a rate that may be as much as 100 per cent of the rate of remuneration for one week of work (excluding overtime, shiftwork, payments for special expenses and penalty rates) or as little as 80 per cent of average weekly earnings (including regular overtime and allowances), depending on the presence or absence of an enterprise or industrial agreement (collective agreement). In New Zealand, the ACC has a maximum weekly benefit of 80% of average weekly earnings which equates to a benefit maximum of around $96000 per year; earners with incomes above about $120k per year are expected to have supplemental insurance coverage. Most compensation payments in Australia and New Zealand are taxable.

This problem of the maximum vexes workers’ compensation systems. On one hand, the historic compromise and exclusive remedy that are at the foundation of workers’ compensation are meant to provide timely, adequate income compensation without reference to the Courts. On the other hand, the adequacy of income declines for earners above the maximum to the point where the adequacy of benefits may be questioned. For earners earning, say, double the maximum, effective compensation may be less than 50% of typical net earnings.

Should there be a maximum? Since premiums are often based on a definition of “insurable” payroll, arguments for the sustainability of the system will tend to support a maximum. How high should the maximum be? That may depend on the spread of earnings for the population being insured… and that will vary greatly by jurisdiction.

About Terry Bogyo:

Terry is an active researcher, speaker and commentator on workers compensation issues. Now retired, he was the Director of Corporate Planning and Development for WorkSafeBC. His responsibilities included environmental scanning, strategic planning and inter-jurisdictional comparisons.

Terry says of himself: I am a student of workers’ compensation systems. Many years ago I discovered two things about this area. First, workers’ comp and OH&S are of vital importance to people. Protecting, caring for and providing compensation to workers are important, noble and morally responsible endeavors. The second thing I learned was that no matter how much I knew about workers' comp/OH&S, there was always so much more to learn. This is an endlessly challenging area of study. My purpose, therefore, is not to lecture, but to reflect on the ideas and issues that are topical in this area... and to invite others to share in a learning experience. By adding your knowledge and insights, others with similar interests can participate in the discovery and study of this important domain.

Comments (4 posted)

One useful measure is published by WCRI for its 16 CompScope states: the percent of claims with TTD constrained by the statutory benefit maximum. For 2011 claims reported as of 2012, the median share was 8.6%, with the lowest-share state at 0.3% and the highest at 24.1%. I think this measure is quite meaningful since it captures the interaction of the benefit formula and the wages of actual injured workers.
For states with the typical 2/3 of gross wages formula, this metric might even be the best single comparison of generosity. (BTW I think Iowa uses 80% of spendable, somewhat less generous for most workers, along with a more generous max.)
Finally, if those complexities weren't enough, replacement rate will be affected by the income-tax-exempt nature of WC benefits, which will be of more consequence in places that have relatively high income taxes (like my home state, where there is no sales tax but a high income tax).

There is a difference between the maximum compensation rate, and the way that the compensation rate is derived from the average weekly wage. Under the Longshore Act, in the US, the compensation rate is two thirds of the average weekly wage. The maximum compensation rate is 200 per cent of the National Average Weekly Wage. The NAWW is calculated annually based on a formula embalmed in the statute. Because the calculation is based on national earnings, is arguable that it discriminates against successful workers, (those earning a high wage), in an industry whose geographic locations are in the higher end of earnings anyway, and is better paid even than most of those working in the same areas.